European economy languishes

Europe's economy stagnated in the second quarter, with the stronger euro cutting corporate profits and recession-bound Germany and Italy failing to contribute to growth.

14 Aug 2003 12:51 GMT

Europe battles with differing economic cycles

The German economy, the largest in Europe, shrank 0.1% in the three months through June, according to the Federal Statistics Office, while Italy slipped into its first recession in more than a decade.

The Netherlands economy also contracted for a third quarter, shrinking 0.5%. A recession is defined as two straight quarters of economic contraction, Bloomberg reported.

Still, with interest rates at a 50-year low of 2% in the twelve member euro-zone and growth in the US starting to pick up, some businessmen and economists are predicting better times ahead.

"The early indicators are sending positive signals, but the recovery is still shaky,"' Michael Diekmann, chief executive officer of Europe's biggest insurer Allianz AG, told Bloomberg in a conference call today.

Euro pick-up

Growth could be as high as 0.6% in the fourth quarter, the European Commission said in a separate report.

Gross domestic product in the euro-zone was unchanged in the second quarter from the first, though gained 0.4% when compared with the same period last year.

The commission sees growth between 0 to 0.4% in the third quarter, rising to between 0.2% to 0.6% in the final three months of the year.

The European Central Bank has cut rates three times in the past year in an attempt to boost growth.

US recovery

US demand is also rising in step with its economic recovery, which may lessen the impact of the currency which has appreciated 15% since the start of the year.

Business confidence in Germany, the region's largest economy, is at a one-year high and French industrial production gained the most in almost two years in June.